Written answers

Wednesday, 15 January 2014

Department of Finance

Tax Reliefs Availability

Photo of Finian McGrathFinian McGrath (Dublin North Central, Independent)
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148. To ask the Minister for Finance his views on correspondence (details supplied) regarding tax relief for over 70s [1465/14]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The system of income tax relief for medical insurance premiums is provided at source at the standard rate of income tax. Therefore, the State was paying 20% of the cost of all private medical insurance premiums. In Budget 2014 the Minister announced that tax relief for medical insurance premiums will be restricted to the first €1,000 per adult and the first €500 per child insured. Any portion of premium paid in excess of these ceilings will no longer qualify for tax relief.

The cost of Income Tax relief in respect of medical insurance has increased significantly in recent years, at €404 million in 2011, €448 million in 2012 and is estimated to be €500 million in 2013. Despite the increasing cost of the relief, the numbers insured are estimated to have reduced by approximately 170,000 over the same period, while at the same time the level of medical cover has decreased on some policies. Against this background the increase in costs is unsustainable.

The Revenue Commissioners estimate that up to 577,000 policy holders, which equates to just under 53% of all policies, may be affected by this measure. However, I should point out that many will only be affected marginally, depending on the cost of the policies that individuals purchase. In addition, individuals can of course opt for less expensive policies and therefore avoid the impact of this measure entirely. The new ceilings will ensure continuing support via the tax system for those who purchase medical insurance policies, while reducing Exchequer exposure to more expensive policies.

The Commission on Taxation in its 2009 report recommended the retention of medical insurance relief but that it should be limited. The introduction of an upper ceiling on the amount of medical insurance premiums that will qualify for tax relief achieves this recommendation. The Government fully supports the elderly in retaining access to medical insurance via community rating of insurance premiums. Community rating, in principle, provides that everybody is charged the same premium for a particular health insurance plan, irrespective of age, gender and the current or likely future state of their health. Community rating therefore means that the level of risk that a particular consumer poses to an insurer does not directly affect the premium paid. It also means that premiums for younger or healthier lives are typically higher than their expected claims would require, whereas for older or less healthy lives, premiums are typically lower than the expected claims would require. Older people who have been paying health insurance premiums for many years will have contributed to intergenerational solidarity when they were younger and could reasonably expect to benefit from it now. The support system that enables community rating, which involves the charging of a levy on the policies of younger individuals, is referred to as risk equalisation. In view of these existing supports for the elderly in obtaining medical insurance, I am not in favour of the introduction of additional tax relief for those aged over 70.

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